Weak Governments and Trade Agreements

Marcelo Olarreaga, Jean-Louis Arcand and Laura Zoratto

No 8595, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The recent theoretical literature on the determinants of trade agreements has stressed the importance of political gains, such as credibility, as a rationale for trade agreements. The empirical literature, however, has lagged behind in the estimation of the economic gains or losses associated with these politically motivated trade agreements. This paper fills that gap by providing estimates of the economic impact of politically and economically motivated trade agreements. We find that credibility gains play a role in increasing the probability of two countries signing an agreement. Moreover, agreements with a stronger political motivation are more trade creating than agreements that are signed for pure market access / economic reasons, and the value for the government of solving its time inconsistency problems through trade agreements is estimated at an average of 1.8% of GDP, which compares quite well with the traditional estimates of the economic gains from trade.

Keywords: Credibility; Political economy; Trade agreements (search for similar items in EconPapers)
JEL-codes: D72 F13 F15 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cis, nep-int and nep-pol
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Citations: View citations in EconPapers (3)

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